|18 July, 2019

Netflix shares sink 11%, analysts still see growth

Netflix, which has 151.6mln customers, raised prices in Britain, Switzerland, Greece and Western Europe in the quarter

The Netflix logo is shown in this illustration photograph in Encinitas, California October 14, 2014. Netflix Inc <NFLX.O> shares were down 3.1 percent at $435.28 after the announcement. The streaming video company will announced its quarterly results later on October 15. Picture taken October 14, 2014. REUTERS/Mike Blake

The Netflix logo is shown in this illustration photograph in Encinitas, California October 14, 2014. Netflix Inc shares were down 3.1 percent at $435.28 after the announcement. The streaming video company will announced its quarterly results later on October 15. Picture taken October 14, 2014. REUTERS/Mike Blake

REUTERS/Mike Blake

Wall Street brokerages stuck to a positive outlook on Netflix Inc on Thursday, betting that a strong content slate for the rest of 2019 would reverse shock losses in U.S. subscribers in the second quarter that sank its stock price.

Shares in the company fell 11% in early trade, as investors worried over lower-than-expected global growth and signs of trouble in its U.S. base.

Six brokerages cut their share price targets to reflect the dip in the shares, but there were no cuts to their ratings on the stock, still seen by a majority of Wall Street firms as a high-potential growth business and a clear "buy".

The company added just 2.83 million international paid streaming subscribers, compared with street expectations of 4.8 million. Brokers Cowen & Co calculated it had missed expectations for second-quarter subscriber numbers three times in the last four years.

"The subscriber miss wasn't unprecedented, though the international miss magnitude was greater than normal," RBC Capital Markets analysts said.

"But Q2 results do highlight the importance of a strong content slate and at least raise the question of whether NFLX needs to be more restrained with price increase pacing."

Netflix, which has 151.6 million customers, raised prices in Britain, Switzerland, Greece and Western Europe in the quarter.

Morningstar analysts said the company had conditioned users to expect strong original content every quarter and when the slate is weak or less known, the ability to drive marginal subscribers to join or renew becomes harder, especially when prices are rising.

The company began the third quarter with the release of its 1980s-set smash-hit "Stranger Things" and will follow it with new seasons of "Orange is the New Black," and "The Crown" as well as hotly-awaited Martin Scorsese movie "The Irishman".

"We would note Netflix misses have been followed by strong quarters, and, along those lines, we expect Netflix's very strong 2H slate will lead to a rebound in sub growth," Credit Suisse analysts wrote in a client note.

The company forecast it would gain 7 million subscribers globally in the third quarter, when it will also launch new seasons of hit Spanish-language series "La Casa de Papel" and the second season of Indian series "Sacred Games."

Netflix also laid out an extensive expansion plan in India, including 5 new originals, a prequel series to India's epic fantasy franchise "Baahubali" and rolling out a lower-priced mobile-only plan within the next three months.

(Reporting by Supantha Mukherjee in Bengaluru; editing by Patrick Graham) ((supantha.mukherjee@thomsonreuters.com; within U.S.+1 646 223 8780, outside U.S. +91 80 6749 6101; Reuters Messaging: supantha.mukherjee.thomsonreuters.com@reuters.net))

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